Canada has a striking variety of both climatic and economic conditions. The country has densely populated metropolitan areas and rural areas, rich provinces, where the average cost of housing exceeds half a million dollars, and inexpensive locations. So the potential buyer in Canada must first of all decide on the location of the object. Different provinces have different legislation, different types of housing and, of course, varying prices. However, by and large the property purchase procedure is common. All the nuances of the deal – in our article.
Rights and obligations of foreign buyers
Foreigners can purchase real estate in Canada. If you plan to buy a home for yourself, you can do so freely, but when buying for investment purposes, you should carefully study the legislation of a particular province, as some of them have restrictions for non-residents (those who do not have citizenship or permanent residency).
For example, some provinces prohibit them from buying agricultural or recreational land or limit the maximum area that can be purchased. For example:
- Alberta limits non-residents to two plots of agricultural or recreational land, which must not exceed 20 acres (8 ha) in total.
- Saskatchewan limits the sale of agricultural land to foreigners to 10 acres (4 ha).
- Manitoba bans non-residents from owning more than 40 acres (16 ha) of agricultural land and requires them to move to the province within two years of buying the land.
- Quebec generally does not allow non-residents to buy farmland without permission from the Quebec Agricultural Protection Commission. In this case, a non-resident is any person who has lived in the province for less than 366 days in the 24 months preceding the real estate transaction.
At the same time, many Canadian banks will not give a foreigner a mortgage for more than five properties. Also, some provinces impose restrictive taxes on non-resident buyers.
For example, in the province of Ontario, a foreign homebuyer in the Greater Toronto Area will have to pay a separate “speculation tax” (NRST) of 15% on the transaction amount. However, if he later becomes a resident of Canada, he will be able to claim a refund of the tax paid. Similar measures exist in British Columbia: there non-residents pay 20% of the transaction amount as a special tax. This rule applies to transactions in Greater Vancouver, the metropolitan area and several other parts of the province. Other provinces, such as Quebec, are thinking about introducing similar taxes, but they have not yet adopted laws.
Rights of foreign property owners
Buying real estate does not give the right to a residence permit or permanent residence, the existence of housing in itself will not become the basis for obtaining a visa. Nevertheless, for applicants for permanent residence on the basis of a business, the availability of housing in Canada, especially in the same province where the company will be located, can be considered an advantage.
More about moving to Canada
A foreign owner of a property in Canada is obliged to pay property tax, income tax – if he rents out a home, and a number of other fees.
Note! Tax residents of the Russian Federation must notify the Russian tax service of the opening of accounts with foreign banks and of the movement of significant funds through them.
Searching for real estate in the country
Before you begin your search, you need to determine where your future property will be located. Natural and economic conditions in Canada are very diverse, so it is worth considering the climate, job prospects, explore the surrounding schools – if you move with children.
The next question is how you see your ideal home. Again, this largely depends on the area. There are many options: an apartment in the city, a townhouse, a detached house… Make a detailed checklist of what should be there and what you do not want to see.
The third fundamental question – how much are you willing to pay for it, so even before you start looking for a mortgage, which you can count on, and to build a further strategy is based on the available amount.
Mortgage in Canada
Foreigners in Canada can get a mortgage, but the process is not very simple, because for the bank one of the most important indicators is a credit history, and the newcomer to the country does not have it. So in addition to documents showing your income and the origin of funds for the first payment, you may also need a letter from the bank whose services you used in your home country. For clients of international banks, which have branches in Canada, everything usually goes much easier.
In general, practice shows that banks are guided by the following rule when approving a mortgage amount. Your monthly housing costs, including mortgage payments, utilities, etc., may not exceed 30% of your gross monthly income and your total monthly debt load (mortgage payments plus other loan payments) may not exceed 40% of your gross monthly income.
Residents may give as a down payment of only 5% of the amount (for real estate worth up to 500 thousand CAD, or $ 400 thousand), and 95% to obtain credit. If the share of their money is less than 20%, they would need to insure the loan through the CMHC (Canadian Mortgage and Housing Corporation) or a private insurer.
For non-residents the picture is different: at least 35% have to be paid with their own money, and only 65% can be borrowed. To do this, you will need to open an account at a Canadian bank. Mortgage interest for non-residents is formally the same as for residents, but if you have no credit history, the bank may well insure and inflate the rate.
To take out a mortgage, you will need to use the services of a Canadian mortgage broker: direct to the foreigner a home loan is unlikely to be given. Broker will examine your situation, prepare an application and submit it to several banks. His task is to get you the best conditions.
To open an account and obtain a mortgage in a Canadian bank, you will need the following documents.
- Photo ID (foreign and domestic passport, instead of which you can use a driver’s license or other documents).
- Proof of your employment and income (pay stubs, tax returns, bank statements, etc.).
- Proof of the down payment and its source (for example, savings account, sale of other property, receipt of a gift or inheritance). If a relative contributes to your initial payment, you will also need a letter signed by them confirming the purpose of the gift and that it is a gift, not a loan.
- Reference letter from a bank in your country.
- Bank statements for three months.
- Credit check in Canada.
- Information about any of your other assets.
- Information about your debts (such as credit card balances, car loans, lines of credit, student loans) or financial obligations (alimony, etc.).
Do not forget to translate all foreign-language documents and have them certified by a notary.
If the bank has approved your mortgage, put it in a preliminary agreement. It specifies the maximum loan amount that you can count on, the upcoming payments, and fix the interest rate – for a period of 60 to 120 days. This means that even if the bank’s mortgage rate rises during the conclusion of the main contract, your loan will be on the same terms as you agreed. And if the rate falls, you will of course contract at the new, more favorable rate. This document does not obligate you to take out a loan with this particular bank, so you are not risking anything.
For some real estate agents, pre-approval is one of the key documents they are not willing to work without.
Once you have decided on the features of the home and the amount available, you can proceed directly to the selection.
Search for accommodation
The easiest way to start your searches is from specialized sites.
Major Canadian Real Estate Sites:
It is also a good idea to contact real estate agents directly; they may have offers that are not publicly available or important additional information. A professional agent must be licensed by the Canadian Real Estate Association or a similar provincial or city-wide organization.
You can also apply for a real estate search on Prian.ru, and realtors will send you the best match for your needs.
First, you should see some offers so you can evaluate prices and get an idea of what a typical Canadian house looks like in the area you are interested in. It is also a good idea to read articles about real estate and immigration to Canada to get a better idea of the Canadian real estate market and life there.
Realtors and lawyers in Canada
A realtor in Canada is not an obligatory participant in the transaction, however, it will be very difficult for a foreigner who is not too familiar with the specifics of the local market to conduct it on his own. Besides:
- If the seller uses the services of a realtor, he will pay for the work of your agent. If not, then not necessarily. So, the services of a realtor will most likely be free for you, but this must be agreed in advance.
- A real estate agent is legally obligated to protect the buyer’s interests and comply with a code of ethics.
How to choose a realtor? Contact someone who works in the region you are interested in and knows the surrounding area; works full-time and has been doing it for many years; is familiar with the legal side of things, including – with sales to foreigners. Do not forget about recommendations – ask your acquaintances who have bought property in Canada, and read the reviews on the Internet.
However, the responsibility for the transaction is not a realtor, but a lawyer – a lawyer or notary. Such an expert must be hired by both the seller and the buyer. The lawyer’s job is to check that the deal is clear, prepare the documents, register the deal, and monitor the transfer of funds. A lawyer who knows the intricacies of the process will help you save time and money and reduce the risks of the deal. You can recommend a lawyer by a realtor or a friend. You can also find one through legal communities.
Step-by-step procedure for a real estate transaction
Stage 1. Reservation of the object
After you have chosen a suitable object, you need to negotiate a deal with its seller. For this purpose, you send him an offer to purchase.
The purchase offer usually states:
- the price you are willing to pay;
- furnishings that you would like to include in the deal, such as appliances or furniture;
- the amount of the deposit;
- financial parameters of the mortgage that you take;
- the date on which you want to take possession (the day of the conclusion of the transaction) – in the secondary market, the date is usually indicated 30-60 days after the signing of the offer;
- the period during which the offer is valid;
- other essential conditions – for example, you may insist on fixing a leak, replacing a door, or repairing a fence.
If it is an attractive property, you may not be the only interested buyer. In general, the seller dictates the terms of the Canadian real estate market, so be prepared to make concessions to get the house just for you. When the seller will accept your offer, he will sign it, and you pay the down payment.
The standard size of the deposit is 5-10% of the property value. It is paid within 24 hours from the moment your offer is accepted. The deposit is refundable if the transaction is rejected, but if the buyer “changes his mind” without a good reason, he can lose his money. The deposit is usually held in a trust account with an agent or notary.
Step 2: Checking the condition of your home
The next step can be a home inspection (home inspection). It is usually done when you buy a house rather than a condo. Some provinces have regulated inspectors and others do not, so it is a good idea to check with the Canadian Association of Home and Property Inspectors at cahpi.ca before you choose.
Inspectors will examine the condition of the building and record any defects found (breakages, cracks, etc.), check the condition of the plumbing, utilities and electrical wiring. If significant defects are found, your agent should insist on reducing the transaction amount by the price of the necessary remodeling
Step 3: Signing the contract
- Seller and buyer passports.
- Confirmation of the seller’s rights to the object (extract from the land register).
- The result of technical expertise – when buying an individual home.
- Estoppel certificate – when buying an apartment in a condominium or cooperative. This document is issued by the condominium council. It indicates the presence of debts, fines or other encumbrances that may be attributed to the apartment or house as a whole, as well as the amount of regular fees that are charged on the apartment being sold. This document is not required in Quebec.
- Receipts for payment of duties, primarily property transfer tax.
Step 4: Payment for the transaction
If the property is purchased without a mortgage, the buyer transfers the purchase amount directly to the account of his lawyer. If it has a mortgage, the payment goes through a bank. At the beginning of the process a deposit is reserved and after the closing of the deal the full amount is transferred to the trusted account of the lawyer. Also, the buyer transfers the attorney’s fees and other “closing costs” to his account.
Step 5: Registration of Title
The lawyer registers the transaction at the land registry office, after which he transfers the money to the seller and gives the buyer the certificate of title and the keys to his new house.
From the time of choosing a property, the whole procedure may take two to three weeks. If a mortgage is used for the purchase, add that much more time.
Conducting a transaction remotely is possible, but taking a mortgage without visiting a Canadian bank in person is very difficult. The only exception is if you are a client of a major international bank with a representative office in Canada.
You can close the deal with a notary in your country – you will scan the signed documents and send them to a Canadian lawyer by e-mail. You can also give a power of attorney to a lawyer in Canada.
As of 2015, electronic signatures of real estate transfer documents are recognized in Ontario, so remote signing is also available.
- The realtor’s commission is usually paid by the seller. Its size is 3–7% of the transaction amount. Formally, the transaction can be carried out without a realtor, but usually, especially a foreigner, you cannot do without him.
- A lawyer – a lawyer or a notary – is an obligatory participant in the transaction. His minimum remuneration is 500 CAD ($ 400) + tax, the usual amount of payment for his services is about 2 thousand CAD ($ 1.6 thousand). Each party pays a lawyer to represent their interests.
- Technical inspection of housing – 400-700 CAD ($ 300-500).
- Land transfer tax – from 0.5 to 2.0%, depending on the value of the property and the province. In Ontario, it is called the Land Transfer Tax. Not applicable in Alberta, Nova Scotia, and rural Saskatchewan.
- New buildings and houses after reconstruction are additionally subject to goods and services tax – GST and sales tax – HST. The combined rate of both taxes is 5 to 15%. Their amount can be included in the final price, which must be checked with the seller.
- NRST – Tax on foreigners when buying real estate in or around Toronto – 15% of the value of the property. In British Columbia (Vancouver), a similar tax is 20%.
- Real estate appraisal – $ 400-500, often paid by the bank.
- Loan insurance (charged with an initial payment of less than 20%) – usually 0.6% of the loan amount.
- Title insurance (sometimes included in your legal costs) – $ 250–400.
- Estoppel certificate – $ 75-250. Some small condominiums give it out for free.
- Tarion Ontario New Home Warranty – $ 750-1,500.
- Translation and certification of documents – from $ 10 per page.
- Local taxes as set by the province or city.